Tag Archives: ab2272

CPUC considers picking up prevailing wage tab for FTTH project

by Steve Blum • , , , ,

Overruns on a fiber to the home build in San Bernardino County offer a glimpse into the cost of a 2014 law that imposed union wage and work rules on broadband infrastructure projects subsidised by the California Advanced Services Fund (CASF). Assembly bill 2272 ended an ongoing dispute over whether CASF-funded projects are subject to California’s so-called prevailing wage law, which generally applies to public works projects.

Historically, the requirement to pay the prevailing wage in any given region for work done with public money has been interpreted by state labor regulators to mean workers have to be paid and projects have to be managed as if a typical union contract was in place, even if no union is involved. In some cases, it can double labor costs.

As it turned out, most CASF grant applicants assumed the worst and factored prevailing wage rules into their project budgets, even before AB 2272 passed. But not everyone got the message. In December of 2014, after AB 2272 had been signed into law, Ultimate Internet Access, Inc. (UIA) applied for CASF grants for two FTTH projects, in Wrightwood and Helendale, in southern San Bernardino County (the Wrightwood project area also includes Los Angeles County).

The company did not know about the prevailing wage rules, or at least did not factor them into its budget. The California Public Utilities Commission reviewed and approved both grants – $1.4 million for the Helendale project – likewise without considering prevailing wage implications. UIA began work in Helendale, and apparently had largely completed it before finding out that it owned an additional $714,000, “mainly in retroactive pay for work already completed, to comply with the prevailing wage requirements”, according to a draft decision now in front of the CPUC.

Presumably, a similar request to cover higher labor costs for the Wrightwood project is also on the way.

As written, the draft decision approves paying an extra $428,000 from CASF for the Helendale project. That represents 60% of the overrun, which is the standard subsidy percentage for this kind of project. That’s a 31% increase in the project’s cost to taxpayers, completely due to California’s prevailing wage law, according to the draft.

The CPUC is scheduled to vote in March on whether or not to pick up the tab.

Will the CPUC pick up the tab for unionising independent broadband projects?

by Steve Blum • , , , ,

When the state legislature was considering a bill to impose union wages and work rules – so-called prevailing wage rules – on broadband projects subsidised by the California Advanced Services Fund, an independent analysis by legislative staff pointed to the unknown but hefty – “likely in the millions of dollars” – extra cost…

This bill would become effective on January 1, 2015 for all infrastructure projects funded in part by the CASF, including those projects which are currently underway. The [California Public Utilities Commission] will … make a determination of whether the project costs will change as a result of this bill. If so, the CPUC will need to determine whether the CASF grant amount should be adjusted to accommodate higher labor costs.

That proposal – assembly bill 2272 – was signed by the governor last week and is now law. Which means it’s time to calculate the extra cost and figure out who will pay for it.

There’s a general assumption that the CPUC will increase grant amounts to to the extent of the original subsidy, often 60% of the total, but sometimes more. (It’s the same question for loans, which can be up to 20% of total construction costs).

No one seems to have a good guess as to what will happen to the share of the cost that would normally be paid for by the ISP. The idea of having the CPUC pick up the entire tab has been discussed, but I haven’t detected any enthusiasm for it.

Any increase in CASF funding – at 60%, 100%, whatever – for an existing project has to be written into a resolution and voted on by commissioners. Sometimes, that process happens quickly. But often not. And it can’t start until ISPs with existing grants figure how much to request.

Another option is for the commission to simply approve a standard formula to apply to these one-time project cost increases. But anything less than 100% will have to be covered by the ISPs. Extra costs and delays will impact business models and could very well kill many projects.

That’s a result that will only please big incumbent cable and telephone companies, particularly the ones that tried to choke off CASF funding in the legislature last year and gave a pile of cash to the assemblyman responsible for the new law.

New prevailing wage law puts Californian ISPs and broadband upgrade projects at risk

by Steve Blum • , , , ,

Assume that any broadband construction work done in conjunction with a subsidy from the California Advanced Services Fund on or after 1 January 2015 has to comply with prevailing wage laws. Including the obligation to comply with a mountain of rules and paperwork. A new law approved by Governor Brown on Tuesday is very specific: CASF subsidies turn infrastructure builds into public works projects, which have to comply with union pay scales and rules.

Existing law has an exception for “work done directly by any public utility company pursuant to order of the Public Utilities Commission or other public authority”. One of the questions that needs to be answered is to what extent, if any, this clause overrides the otherwise clear statement in the new law that “public works means…infrastructure project grants from the California Advanced Services Fund”. There might or might not be wiggle room for work done by a company’s own employees.

Another can of worms is whether companies that have already received grants and loans are liable in any way for work done before the end of 2014. The marquee argument made by the bill’s author, sponsors and supporters was that a ruling made last year by the department of industrial relations regarding one particular project settled the matter, and all it does is end any argument. Which leaves open the possibility that a trade union could file a claim against an ISP for work already done. And that prevailing wage compliance and documentation obligations extend from the start of work, and not the new year. That’s another question that’ll be wrangled over the coming months: don’t assume you’ll like the answer.

Imposing union wage scales and work rules mean higher costs, often double open-market pay rates. Someone has to pay for it. More about that Monday.

Governor hamstrings California’s broadband subsidy fund, pleases cable, telcos, unions

by Steve Blum • , , , ,

With a stroke of Governor Brown’s pen, the cost of building independent broadband infrastructure using money from the California Advanced Services Fund has nearly doubled. Without comment, he signed assembly bill 2272 yesterday.

The new law, which takes effect in January, brings all CASF-subsidised broadband infrastructure projects under so-called prevailing wage rules, which impose union pay scales and work rules – often determined on a statewide basis – regardless of the typical construction costs and practices in a local area. It also specifically puts the massive paperwork burden of proving compliance on the shoulders of Internet service providers – under threat of criminal penalties. And it applies retroactively to existing projects as well as any approved in the future.

Up until this point, it was an open question as to whether a CASF subsidy triggers prevailing wage requirements. The California department of industrial relations had said it does in one particular case, but the appeals process has not yet run its course. As of the new year, though, there will be no doubt.

The door to better broadband closes for many.

AB 2272 is not just a benefit to its trade union sponsors. It’s also a huge gift to the big incumbent telephone and cable companies which bitterly fought the expansion of the CASF program that the governor approved last year. Under the new rules, independent ISPs – those that lack formal certification as regulated telephone companies – can apply for CASF grants and loans. Typically, independent ISPs have significantly lower overhead than big incumbents and often serve remote areas where the cost of living – and construction – is lower.

But not any more. Not if they take CASF money. As a practical matter, AB 2272 more or less doubles labor costs, which account for something like 80% of the total bill for broadband infrastructure projects. Because the rules apply to all the costs – those paid directly by ISPs as well as by CASF – a typical 60% subsidy effectively drops to less than 30%. And the cost of complying with often byzantine prevailing wage regulations – and the criminal risk of getting it wrong – makes CASF funding even less attractive.

It’s a win for construction and telecoms unions, and for AT&T and Comcast and the like – all reliable sources of campaign cash. For everyone else in California, AB 2272 is a huge loss: less competition in the broadband marketplace, leading to fewer jobs, higher monthly bills, and substandard service on decrepit infrastructure.

California assemblyman gushes over Comcast and takes its cash

by Steve Blum • , , , ,

Comcast is a model of modern corporate responsibility, according to assemblyman Adam Gray (D – Merced). In a letter he submitted to the FCC and cited by Comcast as a reason its mega-merger with Time-Warner and market swap with Charter should be approved, Gray showers his love on the company…

I am writing in support of the proposed transaction between Comcast and Time Warner Cable, because, while my constituents appreciate Comcast as a service provider, we are even more grateful to them for their investments in our community.

Comcast has boosted our local schools at seemingly every opportunity. It partners with schools in our area to give thousands of free books to students each year on Dr. Seuss’s birthday. It also sponsors a reading challenge for fifth graders that incentivizes teacher performance.

On its annual Comcast Cares Day, Comcast routinely chooses a local school as one of its project locations.

What could be better than a Comcast Cares Day to warm a legislator’s heart? Well, maybe $11,500 in Comcast campaign cash? No? Okay, how about $60,000?

That’s how much Gray has pocketed from California’s cable and telephone companies, and the cable industry’s Sacramento lobbying front, during the last election cycle and so far in this one, according to the Follow the Money website.

Gray has been a reliable ally. He’s also the author of assembly bill 2272, which was passed by the legislature and is now sitting on Governor Brown’s desk. If Brown signs it, it would just about double the cost of broadband infrastructure projects subsidised by the California Advanced Services Fund by imposing union wage rates and work rules. Which would effectively gut reforms passed last year that allowed independent ISPs to apply for CASF grants and loans. Reforms that were opposed by incumbents, particularly the cable lobby and Comcast.

There’s no way to point to a direct link. All you can do is look at the money Gray received and his efforts on behalf of Comcast, indeed all incumbents, and come to your own conclusions.

Governor’s pen will write the story for community broadband development in California

by Steve Blum • , , , ,

Three bills with big implications for community broadband in California are still sitting on Governor Brown’s desk, waiting for his approval or veto:

Assembly bill 2272 would blow a huge hole in the California Advanced Services Fund and roll back much of the progress made last year when the legislature – and Brown – added $90 million to the kitty and made independent ISPs eligible for broadband construction subsidies. By requiring every CASF-funded project – past, present and future – to follow the state’s so-called prevailing wage rules, the effective subsidy would drop from 60% (for underserved areas) to less than 30% and the cost to the state would nearly double. And AB 2272 would impose a heavy paperwork burden on any company that took the money. Brown should veto it.

On the other hand, AB 2292 would give cities and other local agencies another financing tool to pay for community broadband infrastructure. Authored by San Leandro assemblyman Rob Bonta, it would put broadband on a par with other types of public works, like roads, sewers or water systems, and make it possible for cities to pay for it via bonds issued by infrastructure financing districts. Brown should approve it.

Senate bill 628 is a half a step in the right direction for community broadband development, but a giant leap for public infrastructure overall. It would create the legal framework for enhanced infrastructure funding districts that would have far greater flexibility in building – with two-thirds voter approval – basic facilities. Like roads, sewers and water systems. But not specifically broadband networks, although it doesn’t exactly preclude it either. Half a step forward is still progress and Brown should also approve it.

The deadline for a decision is the end of the month.

Future of broadband subsidies in hands of California’s governor

by Steve Blum • , , ,

It’s up to California governor Jerry Brown, to decide whether or not to double labor costs and effectively cut broadband construction subsidies from the California Advanced Services Fund in half by requiring all projects it funds to follow union work rules and pay scales.

In lopsided votes that included both democrat and republican support, the California senate and assembly approved assembly bill 2272 last week. According to its author, assemblyman Adam Gray (D – Merced)…

AB 2272 codifies a decision already handed down by the department of industrial relations [DIR] to pay prevailing wage on projects funded by the California Advanced Services Fund.

Except the decision isn’t final, as a summary of opposing arguments points out…

Overall, opponents argue that the Legislature should not codify the DIR’s erroneous determination both in light of the pending legal arguments and because this bill would undermine a critical state public policy goal in promoting broadband deployment.

That same analysis by legislative staff pinpoints one of the reasons why…

The bill would result in unknown cost pressures, likely in the tens of millions of dollars, to the CASF as a result of increased projects costs for existing and future projects.

AB 2272 would also double the cost to grant recipients, who have to pay 30% to 40% of the increased cost as matching funds, and make them responsible for tracking and documenting all the bureaucratic details that go along with the so-called prevailing wage rules – a substantial and expensive task.

Governor Brown has until the end of September to decide whether to approve or veto the bill.

California senate weighs even more protection for incumbent telephone and cable companies

by Steve Blum • , , ,

The system is the solution.

There’s no love for independent Internet service providers in the California senate. A bill that would have made it harder for independents to put together broadband infrastructure projects that can be subsidised by the California Advanced Services Fund has been amended by the senate appropriations committee to make it nearly impossible.

Not only does assembly bill 2272 mandate union scale pay and union work rules

Under the [prevailing wage] law, there are multiple responsibilities of the awarding body, which is defined as the department, board, authority, office, or agent awarding a contract for public work. Responsibilities of the awarding body include, among other things, provide for prevailing wage determinations to be posted at each job site, provide notice of the project to [state regulators], report any suspected violations to the Labor Commissioner, and cooperate with [state regulators] in any investigation of suspected violations.

Tracking and enforcing the intricacies of union rules and California’s prevailing wage law is a bureaucratic nightmare. Not a problem for big incumbent service providers, which are themselves bureaucratic nightmares. But a total showstopper for independent ISPs that might want to compete against them.

The senate is likely to approve AB 2292 as amended this week – so far, there’s been no serious opposition to it – and kick it back to the California assembly for concurrence. Despite the bill’s leisurely pace, it’s still on track for approval before the end of the current legislative term next week.

California legislature can help and hurt broadband infrastructure development this week

by Steve Blum • , , , , ,

One step forward and two slides back.

Two bills with big implications for broadband infrastructure in California are queued up for votes in the state legislature this week. Assembly bill 2272 was blessed by the senate leadership last week and sent on for a floor vote. The date hasn’t been set yet.

That bill would put a huge dent in the California Advanced Services Fund by requiring all the projects it subsidises to follow an inflated statewide set of union work rules and pay scales, regardless of who is doing the job or what the going rates are in a particular area. Not only would the so-called prevailing wage requirement drain CASF faster, it would reduce the incentive for non-unionised independent ISPs to build new broadband infrastructure. Unionised incumbents might not even notice the difference.

So far, it’s moved slowly but steadily through the legislative process with barely a peep of protest. Democrats, who have a big majority in the legislature, have uniformly supported it and few republicans have opposed it. Neither side wants to upset the bill’s union backers in an election year.

On the other hand, assembly bill 2292 – would allow local governments to use infrastructure financing districts to pay for broadband projects. It was unanimously approved by the assembly local government committee last week, after listening to San Leandro mayor Stephen Cassidy outline the advantages. It’s scheduled for what could be final approval by the assembly today (the senate has already voted in favor), although it’s possible it could be bumped to later in the week.

The legislature has two more weeks left in the current session. Any bills now on the table will either be approved by the end of next week or die quietly.

Tellus Venture Associates proudly counts the City of San Leandro as a client. I have finally talked to them about AB 2292, but it’s something I’d support regardless of whose idea it is. It’s a bill that would benefit most of my clients. For that matter, AB 2272 would hurt many of my clients. So I’m not a disinterested commentator; take it for what it’s worth.

Higher broadband construction costs means higher costs, California senate analysis admits

by Steve Blum • , , , ,

Not again.

It’s not exactly push back, but the first hint of clear headed thinking about more or less doubling broadband construction costs has emerged from the California legislature. Assembly bill 2272 would add broadband infrastructure subsidised by the California Advanced Services Fund to the list of construction projects that are subject to the state’s so-called prevailing wage law – in other words, be subject to union work rules and wages regardless of who is doing the work. Or how much people otherwise get paid to do it.

Right now, the bill is stuck in limbo in the California senate – put on ice with dozens of other bill’s in the appropriations committee’s suspense file. An analysis prepared by committee staff finally admits that the bill will be costly, in terms of higher charges for subsidised work and in lost opportunities…

This bill will also result in unknown costs pressures to the CASF, likely in the millions of dollars, because more funds will be needed to complete the same amount of projects as a result of increased labor costs.

This bill would become effective on January 1, 2015 for all infrastructure projects funded in part by the CASF, including those projects which are currently underway. The CPUC will incur some one-time costs to identify the status of the existing projects and make a determination of whether the project costs will change as a result of this bill. If so, the CPUC will need to determine whether the CASF grant amount should be adjusted to accommodate higher labor costs. These costs are unknown and will depend on the number of existing projects, the status of those projects, and whether the CPUC determines that the CASF grant should be adjusted.

The analysis only goes halfway – 30% to 40% of the higher costs would have to be paid by ISPs, due to matching fund requirements. That would greatly reduce the incentive to build broadband infrastructure in under and unserved areas, which was the whole point of the program to begin with.

Sometime this week – likely Thursday – legislative leaders will decide behind closed doors whether AB 2272 moves forward. At this point, odds are it will skate through – union cash and campaign workers matter in an election year – but at least some of the facts are on the table.